How Manufacturing Can Learn From Software To Become Agile

It’s ironic that the idea of Agile—a central concept of competitiveness in the 21st Century economy—which began in manufacturing in the early 1990s, took hold in software, not manufacturing. While manufacturers continued to focus on process consistency and efficiency, it was software developers who picked up the ball on Agile and ran with it. It was software developers who showed us in detail how a firm could become Agile on a systematic basis.

Recap of Parts 1 and 2 in this series

Last week, I discussed virtual agility with the example of Li & Fung [SEHK: 0494] and internal agility with the example of Zara.

When Li & Fung and Zara are reviewed as one-off examples, they seem bizarre. “Questionable, even downright crazy” is what Harvard Business Review said. To understand those examples, we have to understand what are the management principles that these firms are following to achieve Agility. These are the principles that manufacturing needs to learn from Agile software development.

Systematic agility through Agile software development

The largest sector-wide implementation of Agile has been in software development. Since the Agile Manifesto of 2001, Agile software development has been adopted in thousands of firms around the world. In effect, “agility” has been systematized into a set of management practices and values known as “Agile”.

Agile software development comprises a set of management practices and values based on customer focus achieved through iterative and incremental development, and where requirements and solutions evolve through collaboration between self-organizing, cross-functional teams and their customers.

Agile represents a management breakthrough that has enabled software development teams to systematically achieve both disciplined execution and continuous innovation, something that was impossible to accomplish with 20th Century hierarchical bureaucracy.

Over the last decade, these management practices and values, under the labels of Agile, Scrum and Kanban have been field-tested and proven in thousands of organizations around the world. My own recent work in radical management distills, builds on and extends these principles, practices and values so that any organization can now achieve the elusive combination of disciplined execution and continuous innovation.

The leading variant of Agile is Scrum. Although the practices of Scrum are embedded in esoteric vocabulary (“sprints”, “burn-down charts”, “product owner”, “scrum-master”), they include the following easily understood practices that facilitate agility: (1) Work is organized in short cycles: (2) Management doesn’t interrupt the team during a work cycle. (3) The team reports to the customer, not the manager. (4) The team estimates how much time work will take. (5) The team decides how much work it can do in an iteration. (6) The team decides how to do the work in the iteration. (7) The team measures its own performance. (8) Work goals are defined before each cycle starts. (9) Work goals are defined through user stories. (10) Impediments to getting the work done are systematically removed.

While these practices are central to Scrum, it is easy to miss in the vast literature on Scrum that the practices of Scrum rest on certain Agile values. True Agilists value individuals and interactions over processes and tools, working software over comprehensive documentation, customer collaboration over contract negotiation, responding to change over following a plan. Without these values, the practices quickly become empty words, that discredit true Agile.

A leading example of a firm practicing Scrum and Agile is Salesforce [CRM], a global enterprise software company headquartered in San Francisco, and best known for its customer relationship management product. In 2007, Salesforce completed a transformation from traditional management to the radically different practices of management known as Scrum and Agile in just three months.

The results were spectacular. Developer Mike Cohn reports in his classic book, Succeeding with Agile: “During the first year of making the switch, Salesforce.com released 94 percent more features, delivered 38 percent more features per developer, and delivered over 500 percent more value to their customers compared to the previous year. . . . Fifteen months after adopting Scrum, Salesforce surveyed its employees and found that 86 percent were having a ‘good time’ or the ‘best time’ working at the company. Prior to adopting Scrum, only 40 percent said the same thing. Further, 92 percent of employees said they would recommend an agile approach to others.”

In 2011, Forbes examined how well chief executives of major corporations had delivered value to shareholders relative to their total compensation. By that measure, the most effective CEO of all was Marc Benioff of Salesforce. Over the past six years he delivered a 41% annual return to shareholders.

Salesforce was able to succeed with Agile, where many others had failed, because they adopted the values of Agile, not just the practices, and so did not fall into the six common mistakes that many other firms have made, because they only adopt the practices of Scrum, not the values of Agile.

US manufacturing took a different path

While Agile became a huge movement in software development, US manufacturing took a different path. Agile was a poor fit with the hierarchical bureaucracy prevailing in large US firms. Firms remained preoccupied with efficiency, cost-cutting and maximizing shareholder value.

Some manufacturers continued to pursue mass-production methods with increased emphasis on cost-savings through economies of scale. Other firms pursued “Lean”whichfocused on at eliminating waste, particularly financial waste, so as to ensure an even flow of production, and Six Sigma, which focused on eliminating variance. Although these approaches had some practices in common with Agile, including small batch sizes, increased flexibility and reduced cycle times, the thrust was different. They continued to focus on enhanced efficiency and cost cutting, while agility and Agile focused on adding value for customers.

The result, as discussed in my series of articles, “Why Amazon Can’t Make A Kindle In the USA” was that millions of jobs and whole sectors of industry were outsourced to Asia, undermining US’s long-term capacity to compete in a wide range of industries. Many firms like GM and Chrysler slid into the bankruptcy.

Now, U.S. manufacturing is at the cusp of a massive transformation as leading firms consider bringing their factories back from abroad: see my article, “Wikispeed: How A 100mpg Car Was Developed in 3 Months”. In addition, a group of new technologies—robotics, artificial intelligence, 3D printing, and nanotechnology—are advancing rapidly and together will spark a radical transformation of manufacturing worldwide over the next decade. The winners in the rapidly changing world of manufacturing will be those firms that have mastered the agility needed to generate rapid and continuous customer-based innovation.

The shift to Agile is not just a matter of adopting one or two particular management tactics. Agile involves a radically different kind of management with a different goal (delighting the customer), a different role for managers (enabling self-organizing teams), a different way of coordinating work (dynamic linking), different values (continuous improvement and radical transparency) and different communications (horizontal conversations). A single fix is not enough: companies need systemic change.

When the practices and values of Scrum and Agile are applied to manufacturing, the results can be spectacular, as Wikispeed shows.

One would think that with the declining returns from traditional business strategy the need to become more agile would be obvious and that firms would be embracing the radical management practices and values of Agile. Yet even today Agile largely ignored senior management and business schools. In some ways, Agile remains the best-kept management secret on the planet.

One reason for the neglect is that the management discoveries of Agile were not made by “the right people”: academics in business schools or high-paid managers in big corporations. The discoveries were made by people that, in prospect, one might think would be the least likely people to have solved a management problem: geeks. Software developers are known to be antipathetic to both managers and management. Often poorly dressed and speaking about technical issues that managers could hardly grasp, these employees were the most problematic of a big organization’s employees. How could they possibly have solved a problem that had stumped the finest management minds for decades?

Managers trained in traditional strategy theory and accustomed to maximizing shareholder value are daunted by the fundamental nature of the change in terms of practices and values and are often unenthusiastic. Yet the perennial objections to Agile are depressingly familiar: they are mostly pretexts for maintaining the status quo, rather than real reasons not to become agile.

The bottom line: Agile is the name of the game

In 1995, Steven Goldman and Kenneth Preiss wrote prophetically in their book, Agile Competitors and Virtual Organizations: “The only question that matters is, Which game is being played now? The answer is, ‘Agility.’” US manufacturing didn’t listen and pursued a different path. The result was an economic disaster.

Today in 2012, the name of the manufacturing game is even more c`learly Agile. The question is: will manufacturing managers listen this time?